John Maynard Keynes

National self-sufficiency

(1933)

Note

With this text Keynes gives a patent of intellectual respectability to the protectionist state, implicitly accepting the policies of economic nationalism (neo-mercantilism) that will lead straight to the Second World War.

I was brought up, like most Englishmen, to respect free trade not only as an economic doctrine which a rational and instructed person could not doubt but almost as a part of the moral law. I regarded departures from it as being at the same time an imbecility and an outrage. I thought England's unshakable free-trade convictions, maintained for nearly a hundred years, to be both the explanation before man and the justification before heaven of her economic supremacy. As lately as 1923 I was writing that free trade was based on fundamental truths 'which, stated with their due qualifications, no one can dispute who is capable of understanding the meaning of the words' [JMK, vol. XIX, p. 147].

Looking again today at the statements of these fundamental truths which
I then gave, I do not find myself disputing them. Yet the orientation of
my mind is changed; and I share this change of mind with many others. Partly,
indeed, my background of economic theory is modified. I should not charge
Mr Baldwin, as I did then, with being 'a victim of the protectionist fallacy
in its crudest form',
because he believed that, in the existing conditions, a tariff might do
something to diminish British unemployment. But mainly I attribute my change
of outlook to something else - to my hopes and fears and preoccupations,
along with those of many or most, I believe, of this generation throughout
the world, being different from what they were. It is a long business to
shuffle out of the mental habits of the pre-war nineteenth-century world.
But today, at last, one third of the way through the twentieth century,
we are most of us escaping from the nineteenth; and by the time we reach
its mid-point it is likely that our habits of mind and what we care about
will be as different from nineteenth-century methods and values as each
other century's has been from its predecessor's. It may be useful, therefore,
to attempt some sort of a stocktaking, of an analysis, of a diagnosis,
to discover in what this change of mind essentially consists.

What did
the nineteenth-century free traders, who were amongst the most idealistic
and disinterested of men, believe that they were accomplishing?

They believed - and perhaps it is fair to put this first - that they
were being perfectly sensible, that they alone were clear sighted, and
that the policies which sought to interfere with the ideal international
division of labour were always the offspring of ignorance out of self-interest.

In the second place, they believed that they were solving the problem
of poverty, and solving it for the world as a whole, by putting to their
best uses, like a good housekeeper, the world's resources and abilities.

They believed, further, that they were serving not merely the survival
of the economically fittest but the great cause of liberty, of freedom
for personal initiative and individual gift, the cause of inventive art
and the fertility of the untrammelled mind against the forces of privilege
and monopoly and obsolescence. They believed, finally, that they were the
friends and assurers of peace and international concord and economic justice
between nations, and the diffusers of the benefits of progress.

And if to the poet of that age there sometimes came strange feelings
to wander far away where never comes the trader and catch the wild goat
by the hair, there came also with full assurance the comfortable reaction
:

I, to herd with narrow foreheads, vacant of our glorious gains,
Like a beast with lower pleasures, like a beast with lower pains!

II

What fault have we to find with this? Taking it at its surface value -
none. Yet we are not, many of us, content with it as a working political
theory. What is wrong?

To begin with the question of peace. We are pacifist
today with so much strength of conviction that, if the economic
internationalist could win this point, he would soon recapture our support.
But it does not now seem obvious that a great concentration of national
effort on the capture of foreign trade, that the penetration of a country's
economic structure by the resources and the influence of foreign capitalists,
that a close dependence of our own economic life on the fluctuating economic
policies of foreign countries, are safeguards and assurances of international
peace. It is easier, in the light of experience and foresight, to argue
quite the contrary. The protection of a country's existing foreign interests,
the capture of new markets, the progress of economic imperialism - these
are a scarcely avoidable part of a scheme of things which aims at the maximum
of international specialisation and at the maximum geographical
diffusion of capital wherever its seat of ownership. Advisable domestic
policies might often be easier to compass, if, for example, the phenomenon
known as' the flight of capital' could be ruled out. The divorce between
ownership and the real responsibility of management is serious within a
country when, as a result of joint-stock enterprise, ownership is broken
up between innumerable individuals who buy their interest today and sell
it tomorrow and lack altogether both knowledge and responsibility towards
what they momentarily own. But when the same principle is applied internationally,
it is, in times of stress, intolerable - I am irresponsible towards what
I own and those who operate what I own are irresponsible towards me. There
may be some financial calculation which shows it to be advantageous that
my savings should be invested in whatever quarter of the habitable globe
shows the greatest marginal efficiency of capital or the highest rate of
interest. But experience is accumulating that remoteness between ownership
and operation is an evil in the relations between men, likely or certain
in the long run to set up strains and enmities which will bring to nought
the financial calculation.

I sympathise, therefore, with those who would
minimise, rather than with those who would maximise, economic entanglement
between nations. Ideas, knowledge, art, hospitality, travel - these
are the things which should of their nature be international. But
let goods be homespun whenever it is reasonably and conveniently possible;
and, above all, let finance be primarily national. Yet, at the
same time, those who seek to disembarrass a country of its entanglements
should be very slow and wary. It should not be a matter of tearing up roots
but of slowly training a plant to grow in a different direction.

For these strong reasons, therefore, I am inclined to the belief
that, after the transition is accomplished, a greater measure of
national self-sufficiency and economic isolation between countries
than existed in 1914 may tend to serve the cause of peace, rather
than otherwise. At any rate the age of economic internationalism
was not particularly successful in avoiding war; and if its friends retort
that the imperfection of its success never gave it a fair chance, it is
reasonable to point out that a greater success is scarcely probable in the
coming years.

Let us turn from these questions of doubtful judgement, where
each of us will remain entitled to his own opinion, to a matter
more purely economic. In the nineteenth century the economic internationalist
could probably claim with justice that his policy was tending to
the world's great enrichment, that it was promoting economic progress,
and that its reversal would have seriously impoverished both ourselves
and our neighbours. This raises a question of balance between economic and
non-economic advantage of a kind which is not easily decided. Poverty is
a great evil; and economic advantage is a real good, not to be sacrificed
to alternative real goods unless it is clearly of an inferior weight. I
am ready to believe that in the nineteenth century two sets of conditions
existed which caused the advantages of economic internationalism to outweigh
disadvantages of a different kind. At a time when wholesale migrations were
populating new continents, it was natural that the men should carry with
them into the New Worlds the material fruits of the technique of the Old,
embodying the savings of those who were sending them. The investment of
British savings in rails and rolling stock to be installed by British engineers
to carry British emigrants to new fields and pastures, the fruits
of which they would return in due proportion to those whose frugality had
made these things possible, was not economic internationalism remotely resembling
in its essence the part ownership of the A.E.G. of Germany by a speculator
in Chicago, or of the municipal improvements of Rio de Janeiro
by an English spinster. Yet it was the type of organisation necessary to
facilitate the former which has eventually ended up in the latter. In the
second place, at a time when there were enormous differences in degree in
the industrialisation and opportunities for technical training in different
countries, the advantages of a high degree of national specialisation were
very considerable.

But I am not persuaded that the economic advantages of the
international division of labour today are at all comparable with what they
were. I must not be understood to carry my argument beyond a certain
point. A considerable degree of international specialisation is
necessary in a rational world in all cases where it is dictated
by wide differences of climate, natural resources, native aptitudes, level
of culture and density of population. But over an increasingly wide range
of industrial products, and perhaps of agricultural products also, I become
doubtful whether the economic cost of national self-sufficiency is great
enough to outweigh the other advantages of gradually bringing the producer
and the consumer within the ambit of the same national, economic and financial
organisation. Experience accumulates to prove that most modern mass-production
processes can be performed in most countries and climates with almost equal
efficiency. Moreover, as wealth increases, both primary and manufactured
products play a smaller relative part in the national economy compared with
houses, personal services and local amenities which are not the subject
of international exchange; with the result that a moderate increase in the
real cost of the former consequent on greater national self-sufficiency
may cease to be of serious consequence when weighed in the balance against
advantages of a different kind. National self-sufficiency, in short, though
it costs something, may be becoming a luxury which we can afford if we happen
to want it. Are there sufficient good reasons why we may happen to want
it ?

III

The decadent international but individualistic capitalism, in the hands
of which we found ourselves after the War, is not a success. It is not intelligent,
it is not beautiful, it is not just, it is not virtuous - and it doesn't
deliver the goods. In short, we dislike it and we are beginning to despise
it. But when we wonder what to put in its place, we are extremely perplexed.

Each year it becomes more obvious that the world is embarking on
a variety of politico-economic experiments, and that different
types of experiment appeal to different national temperaments and
historical environments. The nineteenth century free trader's economic internationalism
assumed that the whole world was, or would be, organised on a basis
of private competitive capitalism and of the freedom of private contract
inviolably protected by the sanctions of law - in various phases, of course,
of complexity and development, but conforming to a uniform type which it
would be the general object to perfect and certainly not to destroy. Nineteenth-century
protectionism was a blot upon the efficiency and good sense of
this scheme of things, but it did not modify the general presumption as
to the fundamental characteristics of economic society.

But today one country after another abandons these presumptions.
Russia is still alone in her particular experiment, but no longer
alone in her abandonment of the old presumptions. Italy, Ireland,
Germany have cast their eyes, or are casting them, towards new
modes of political economy. Many more countries after them will soon be
seeking, one by one, after new economic gods. Even countries such as Great
Britain and the United States, though conforming in the main to the old
model, are striving, under the surface, after a new economic plan. We do
not know what will be the outcome. We are -all of us, I expect - about to
make many mistakes. No one can tell which of the new systems will prove
itself best.

But the point for my present discussion is this. We each have
our own fancy. Not believing that we are saved already, we each
would like to have a try at working out our own salvation. We do
not wish, therefore, to be at the mercy of world forces working out,
or trying to work out, some uniform equilibrium according to the
ideal principles, if they can be called such, of laissez-faire capitalism.
There are still those who cling to the old ideas, but in no country of the
world today can they be reckoned as a serious force. We wish - for the time
at least and so long as the present transitional, experimental phase endures
- to be our own masters, and to be as free as we can make ourselves
from the interferences of the outside world.

Thus, regarded from this point of view, the policy of an increased
national self-sufficiency is to be considered not as an ideal in
itself but as directed to the creation of an environment in which
other ideals can be safely and conveniently pursued.

Let me give as dry an illustration of this as I can devise, chosen
because it is connected with ideas with which recently my own mind
has been largely preoccupied. In matters of economic detail, as
distinct from the central controls, I am in favour of retaining
as much private judgement and initiative and enterprise as possible.
But I have become convinced that the retention of the structure
of private enterprise is incompatible with that degree of material
well-being to which our technical advancement entitles us, unless the rate
of interest falls to a much lower figure than is likely to come about by
natural forces operating on the old lines. Indeed the transformation of
society, which I preferably envisage, may require a reduction in the rate
of interest towards vanishing point within the next thirty years. But under
a system by which the rate of interest finds, under the operation of normal
financial forces, a uniform level throughout the world, after allowing for
risk and the like, this is most unlikely to occur. Thus for a complexity
of reasons, which I cannot elaborate in this place, economic internationalism
embracing the free movement of capital and of loanable funds as well as
of traded goods may condemn this country for a generation to come to a much
lower degree of material prosperity than could be attained under a different
system.

But this is merely an illustration. The point is that there is
no prospect for the next generation of a uniformity of economic
systems throughout the world, such as existed, broadly speaking,
during the nineteenth century; that we all need to be as free as
possible of interference from economic changes elsewhere, in order
to make our own favourite experiments towards the ideal social
republic of the future; and that a deliberate movement towards
greater national self-sufficiency and economic isolation will make our task
easier, in so far as it can be accomplished without excessive economic cost.

IV

There is one more explanation, I think, of the reorientation of our minds. The nineteenth century carried to extravagant lengths the criterion of what one can call for short the financial results, as a test of the advisability of any course of action sponsored by private or by collective action. The whole conduct of life was made into a sort of parody of an accountant's nightmare. Instead of using their vastly increased material and technical resources to build a wonder-city, they built slums; and they thought it right and advisable to build slums because slums, on the test of private enterprise, 'paid', whereas the wonder-city would, they thought, have been an act of foolish extravagance, which would, in the imbecile idiom of the financial fashion, have 'mortgaged the future' ; though how the construction today of great and glorious works can impoverish the future no man can see until his mind is beset by false analogies from an irrelevant accountancy. Even today we spend our time - half vainly, but also, I must admit, half successfully - in trying to persuade our countrymen that the nation as a whole will assuredly be richer if unemployed men and machines are used to build much needed houses than if they are supported in idleness. For the minds of this generation are still so beclouded by bogus calculations that they distrust conclusions which should be obvious, out of a reliance on a system of financial accounting which casts doubt on whether such an operation will 'pay'. We have to remain poor because it does not 'pay' to be rich. We have to live in hovels, not because we cannot build palaces, but because we cannot 'afford' them.

The same rule of self-destructive financial calculation governs every
walk of life. We destroy the beauty of the countryside because
the unappropriated splendours of nature have no economic value. We are capable
of shutting off the sun and the stars because they do not pay a dividend.
London is one of the richest cities in the history of civilisation, but
it cannot 'afford' the highest standards of achievement of which its own living citizens are capable, because they do not 'pay'.

If I had the power today I should surely set out to endow our capital
cities with all the appurtenances of art and civilisation on the
highest standards of which the citizens of each were individually
capable, convinced that what I could create, I could afford - and
believing that money thus spent would not only be better than any dole,
but would make unnecessary any dole. For with what we have spent on the
dole in England since the War we could have made our cities the greatest
works of man in the world.

Or again, we have until recently conceived it amoral duty to ruin
the tillers of the soil and destroy the age-long human traditions
attendant on husbandry if we could get a loaf of bread thereby
a tenth of a penny cheaper. There was nothing which it was not
our duty to sacrifice to this Moloch and Mammon in one; for we
faithfully believed that the worship of these monsters would overcome the
evil of poverty and lead the next generation safely and comfortably, on
the back of compound interest, into economic peace.

Today we suffer disillusion, not because we are poorer than we
were - on the contrary even today we enjoy, in Great Britain at
least, a higher standard of life than at any previous period -
but because other values seem to have been sacrificed and because,
moreover, they seem to have been sacrificed unnecessarily. For
our economic system is not, in fact, enabling us to exploit to the utmost
the possibilities for economic wealth afforded by the progress of our technique,
but falls far short of this, leading us to feel that we might as
well have used up the margin in more satisfying ways.

But once we allow ourselves to be disobedient to the test of an
accountant's profit, we have begun to change our civilisation.
And we need to do so very warily, cautiously and self-consciously.
For there is a wide field of human activity where we shall be wise
to retain the usual pecuniary tests. It is the state, rather than
the individual, which needs to change its criterion. It is the conception
of the Chancellor of the Exchequer as the chairman of a sort of joint-stock
company which has to be discarded. Now if the functions and purposes of
the state are to be thus enlarged, the decision as to what, broadly speaking,
shall be produced within the nation and what shall be exchanged with abroad,
must stand high amongst the objects of policy.

V

From these reflections on the proper purposes of the state I return to
the world of contemporary politics. Having sought to understand and to do
full justice to the ideas which underlie the urge felt by so many countries
today towards greater national self-sufficiency, we have to consider with
care whether in practice we are not too easily discarding much of value
which the nineteenth century achieved. In those countries where the advocates
of national self-sufficiency have attained power, it appears to my judgement
that, without exception, many foolish things are being done. Mussolini may
be acquiring wisdom teeth. But Russia exhibits the worst example which the
world, perhaps, has ever seen of administrative incompetence and of the
sacrifice of almost everything that makes life worth living to wooden heads.
Germany is at the mercy of unchained irresponsibles - though it is too soon
to judge her capacity of achievement. The Irish Free State, a unit much
too small for a high degree of national insufficiency except at crushing
economic cost, is discussing plans which might, if they were carried out,
be ruinous.

Meanwhile, those countries which maintain, or are adopting,
straightforward protectionism of the old-fashioned type, refurbished
with the addition of a few of the new plan quotas, are doing many
things incapable of rational defence. Thus, if the Economic Conference were
to achieve a mutual reduction of tariffs and prepare the way for regional
agreements, it would be matter for sincere applause. For I must not be supposed
to be endorsing all those things which are being done in the political
world today in the name of economic nationalism. Far from it. But I seek
to point out that the world towards which we are uneasily moving is quite
different from the ideal economic internationalism of our fathers, and that
contemporary policies must not be judged on the maxims of that former faith.

I see three outstanding dangers in economic nationalism and in the
movements towards national self-sufficiency.

The first is Silliness - the silliness of the doctrinaire. It is
nothing strange to discover this in movements which have passed somewhat
suddenly from the phase of midnight high-flown talk into the field
of action. We do not distinguish, at first, between the colour
of the rhetoric with which we have won a people's assent and the
dull substance of the truth of our message. There is nothing insincere in
the transition. Words ought to be a little wild, for they are the assault
of thoughts upon the unthinking. But when the seats of power and authority
have been attained there should be no more poetic licence. On the contrary,
we have to count the cost down to the penny which our rhetoric has despised.
An experimental society has need to be far more efficient than an old-established
one, if it is to survive safely. It will need all its economic margin for
its own proper purposes and can afford to give nothing away to softheadedness
or doctrinaire folly.

The second danger - and a worse danger than silliness - is Haste.
Paul Valéry's aphorism is worth quoting - 'Political conflicts distort
and disturb the people's sense of distinction between matters of importance
and matters of urgency.' The economic transition of a society is a thing to
be accomplished slowly. What I have been discussing is not a sudden revolution,
but the direction of secular trend. We have a fearful example in Russia today
of the evils of insane and unnecessary haste. The sacrifices and losses of
transition will be vastly greater if the pace is forced. This is above all
true of a transition towards greater national self-sufficiency and a planned
domestic economy. For it is of the nature of economic processes to be rooted
in time. A rapid transition will involve so much pure destruction of wealth
that the new state of affairs will be, at first, far worse than the old, and
the grand experiment will be discredited.

The third risk, and the worst risk
of all three, is Intolerance and the stifling of instructed criticism.
The new movements have usually come into power through a phase
of violence or quasi-violence. They have not convinced their opponents;
they have downed them. It is the modern method - to depend on propaganda
and to seize the organs of opinion; it is thought to be clever and useful
to fossilise thought and to use all the forces of authority to paralyse
the play of mind on mind. For those who have found it necessary to employ
all methods whatever to attain power, it is a serious temptation to continue
to use for the task of construction the same dangerous tools which wrought
the preliminary house-breaking.

Russia, again, furnishes us with an example
of the blunders which a regime makes when it has exempted itself
from criticism. The explanation of the incompetence with which
wars are always conducted on both sides may be found in the comparative
exemption from criticism which the military hierarchy affords to the high
command. I have no excessive admiration for politicians, but, brought up
as they are in the very breath of criticism, how much superior they are
to the soldiers! Revolutions only succeed because they are conducted by
politicians against soldiers. Paradox though it be - who ever heard of a
successful revolution conducted by soldiers against politicians? But we
all hate criticism. Nothing but rooted principle will cause us willingly
to expose ourselves to it.

Yet the new economic modes, towards which we are blundering, are,
in the essence of their nature, experiments. We have no clear idea
laid up in our minds beforehand of exactly what we want. We shall
discover it as we move along, and we shall have to mould our material
in accordance with our experience. Now for this process bold, free
and remorseless criticism is a sine qua non of
ultimate success. We need the collaboration of all the bright spirits
of the age. Stalin has eliminated every independent, critical mind,
even when it is sympathetic in general outlook. He has produced
an environment in which the processes of mind are atrophied. The
soft convolutions of the brain are turned to wood. The multiplied
bray of the loud speaker replaces the inflections of the human voice. The
bleat of propaganda, as Low has shown us, bores even the birds and the beasts
of the field into stupefaction. Let Stalin be a terrifying example
to all who seek to make experiments. If not, I, at any rate, will soon be
back again in my old nineteenth-century ideals, where the play of mind on
mind created for us the inheritance which we are seeking today to divert
to our own appropriate purposes.